12-Month CD Rates Slip to 1.52% as Bank Spreads Remain Historically Wide

Looking across the CD curve, the 12-month term offers the highest yield at 1.52%, while the 60-month rate sits lower at 1.34%. Shorter-term options like the 3-month CD provide only 1.28%, reflecting a curve that is somewhat inverted at the long end. Beyond CDs, liquid savings accounts are offering a meager 0.39%, and money market accounts are slightly better at 0.56%. Interest checking remains negligible at just 0.07%, providing almost no return for depositors regardless of their balance. These rates are significantly lower than the current Fed Funds Rate of 3.64%, which is the benchmark for overnight lending between banks. The gap between the 3.64% Fed rate and the 0.39% savings rate illustrates the ultra-low deposit regime currently in place. Banks are clearly prioritizing margin preservation over deposit growth in the current economic climate.

The spread between CD rates and Treasury yields is currently deep in negative territory across all maturities. For the 12-month duration, the -196 basis point spread means savers are sacrificing nearly 2% in annual yield by choosing a bank CD over a Treasury bill. This gap is even wider at the 60-month mark, where the spread reaches a staggering -253 basis points against the 3.87% Treasury yield. For any rational saver, Treasuries are currently the vastly superior option for capital preservation and income generation. Banks are clearly flush with liquidity and have no incentive to raise rates to attract more capital from the public. This environment creates a significant tax on inertia for depositors who leave funds in traditional bank accounts rather than moving to market instruments.

The current 12-month CD rate of 1.52% sits in the 40th percentile of historical data, indicating it is slightly below the long-term median of 1.63%. We have identified five historical periods where rates were within 25 basis points of this level, including several instances in 2023 and 2025. Historically, when rates are at this level, the regional bank ETF known as KRE has shown strong forward performance over longer horizons. While the 3-month median return for KRE is a slight -0.3%, the 12-month median return jumps to a robust +27.1%. This suggests that while short-term volatility is common, the current rate environment eventually supports significant bank stock appreciation. The S&P 500 also shows a 100% positive hit rate over 12 months from these levels, with a median return of 26.8%.

The current ultra-low deposit regime is a massive tailwind for bank net interest margins, as the cost of funds remains suppressed. Large money center banks like JPM and WFC are primary beneficiaries, as they possess massive, low-cost deposit bases that do not require high rates to maintain. Conversely, online banks like ALLY and SOFI often face more pressure as they must offer higher rates to attract customers, though even they are benefiting from wide spreads. Recent one-month performance shows regional banks down over 10%, suggesting a disconnect between fundamental margin strength and market sentiment. The high VIX of 27.2 indicates general market fear, but the underlying profitability of banks remains protected by low deposit costs. Money center banks showed resilience today with JPM and WFC posting gains despite the broader monthly decline in the sector.

The transmission of Federal Reserve policy to bank deposit rates remains incredibly sluggish in the current cycle. While the Fed Funds Rate stands at 3.64%, the average 12-month CD rate has only reached 1.52%, representing a very low pass-through rate. This lag allows banks to keep their lending rates high while keeping their interest expenses low, effectively capturing the difference for shareholders. The Fed's recent actions have resulted in a 0.69% year-over-year decrease in the benchmark rate, which banks have used as a justification to trim CD rates further. As long as the banking system remains over-capitalized, the Fed's influence on retail deposit rates will likely remain muted. Savers are essentially paying for the stability of the banking system through these suppressed yields and wide spreads.